BAESF - Kratos Defense & Security Solutions: The Stock Price Run-Up Is Overdone
Thesis
Kratos Defense & Security Solutions, Inc. (KTOS) is a small-cap defense contractor with some niche market strengths in aerial target drones, space and satellite communications and microwave electronics. The company’s stock price has gained over 400% since early 2016 on growing revenue, improved financial performance and market expectation of leadership and growth in the unmanned combat aerial system (UCAS) market. The stock is trading at a 10-year high and the P/E ratio is ~68. But the optimism is overdone. Kratos’ efforts in the nascent UCAS market may not pan out due to